How can I beat Inflation in India?
- Manan Mehta
- Nov 19
- 8 min read
If you need help with any of the following, feel free to contact us. Our team of experts will be happy to help you:
Investing and portfolio management
Spending optimization, EMIs & credit cards
Insurance advisory
Tax planning
Will & estate planning
Most other financial queries or challenges
You can also email us at help@reymanwealth.com
How to beat Inflation in India?
Inflation is one of the most misunderstood yet critical concepts that directly impacts your wealth. Many Indians believe they're earning good returns on their Fixed Deposits or traditional savings, but the harsh reality is that inflation silently erodes their purchasing power year after year.
This comprehensive guide explains inflation in simple terms, shows you real historical data from India, and reveals why your investment returns absolutely must outperform inflation to build actual wealth. Once you've read this post, you'll know exactly how to beat inflation in India!
What Is Inflation? The Simple Explanation
Imagine you could buy a kilogram of rice for ₹50 last year. This year, the same kilogram costs ₹53. That ₹3 increase represents inflation—the rise in prices of goods and services over time.
Inflation means your money loses value as time passes. The ₹100 note in your wallet today will buy fewer things next year than it can buy today. This isn't just an economic theory. It's a reality that affects your daily life, from grocery bills to school fees to medical expenses.
In India, inflation is measured primarily through two indices:
Consumer Price Index (CPI): Tracks the price changes of a basket of goods and services that households typically consume, including food, housing, clothing, transportation, and healthcare.
Wholesale Price Index (WPI): Measures price changes at the wholesale level, tracking raw materials, intermediate goods, and finished products.
For most Indians, CPI inflation matters more because it directly reflects the cost of living.
Inflation in India: Historical Trends (2015-2025)
Understanding how inflation has moved in India over the past decade provides crucial context for making investment decisions.
Decade Overview (2015-2024)
Here's how inflation has fluctuated in India:
Year | Annual Inflation Rate |
2015 | 4.9% |
2016 | 4.9% |
2017 | 3.3% |
2018 | 3.9% |
2019 | 3.7% |
2020 | 6.6% |
2021 | 5.1% |
2022 | 6.7% |
2023 | 5.7% |
2024 | 4.9% |
How Inflation Destroys Purchasing Power
Let's understand this with a concrete example that every Indian can relate to:
Example 1: The Cost of Groceries
Suppose your monthly grocery bill was ₹10,000 in 2015. With average inflation of approximately 5% annually, here's how it would have increased:
2015: ₹10,000
2017: ₹11,025
2019: ₹12,155
2021: ₹13,401
2024: ₹15,386
Your grocery bill increased by over 53% in just nine years — not because you're buying more, but simply because prices rose.
Example 2: The Erosion of Cash
Based on actual inflation data from 2015-2024, if you had kept ₹1,00,000 in cash at home:
Amount in 2015: ₹1,00,000
Equivalent purchasing power in 2024: ₹61,600
Loss in purchasing power: ₹38,400 (38.4%)
This means that ₹1,00,000 from 2015 can only buy goods worth about ₹61,600 in 2024 prices. You've lost nearly 40% of your wealth simply by holding cash.
If you want someone to assist you with your investments and grow your wealth, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com
Fixed Deposits vs Inflation: The Uncomfortable Truth
Fixed Deposits (FDs) have traditionally been considered a safe, reliable investment by millions of Indians. Banks promise fixed returns, your principal is secure, and you receive guaranteed interest. What could go wrong?
The problem is that we look only at Interest rates and not at real returns after inflation. The truth is FDs barely beat inflation. Savings accounts? You might as well be stuffing your money in a pillowcase.
Historical FD Rates in India
From 2015-2024, major Indian banks offered FD rates averaging around 6-7% for most tenures:
Period | Average FD Rate |
2015 | 8.0% |
2016 | 7.5% |
2017 | 7.0% |
2018 | 6.5% |
2019 | 6.5% |
2020 | 5.5% |
2021 | 5.5% |
2022 | 6.5% |
2023 | 7.0% |
2024 | 7.0% |
These rates appear attractive on paper. However, the reality is quite different once we account for taxes and inflation.
The Tax Impact on FD Returns
Interest earned on Fixed Deposits is fully taxable as per your income tax slab. For someone in the 30% tax bracket (annual income above ₹15 lakh), here's what happens:
Example:
FD interest rate: 7%
Tax @ 30%: 2.1%
After-tax return: 4.9%
Your actual earnings drop by nearly 30% due to taxation.
FDs After Inflation: The Real Return
Now comes the critical part—calculating the real return after accounting for both taxes and inflation.
The formula for real return is: Real Return = [(1 + After-Tax Return) / (1 + Inflation Rate)] - 1
Average FD rate: 6.70%
After-tax return (30% bracket): 4.69%
Average inflation: 4.97%
Real return: -0.25%
You read that correctly. Negative real returns.
Case Study: ₹1 Lakh FD Investment (2015-2024)
Let's see what actually happened to someone who invested ₹1,00,000 in Fixed Deposits in 2015 and held until 2024:
Nominal Value (what your bank statement shows): ₹1,58,124
This looks impressive—a 58% gain over 9 years!
Real Value (after adjusting for inflation): ₹97,404
Wait, you actually lost ₹2,596 in real purchasing power despite earning interest for 9 years.
Years When FDs Lost to Inflation
Looking at year-by-year data reveals how frequently FDs underperformed inflation:
2020: FD real return: -2.58% (inflation at 6.6%, FD rates at 5.5%)
2021: FD real return: -1.19% (inflation at 5.1%)
2022: FD real return: -2.01% (inflation at 6.7%)
2023: FD real return: -0.76% (inflation at 5.7%)
Out of 10 years, FDs delivered negative real returns in 4 years, and marginal positive returns in most others.
The Long-Term Perspective
Research examining 25 years of data (1990-2014) found that after-tax FD returns exceeded inflation in only 5 years out of 25. In 20 years, inflation effectively eroded the value of money invested in Fixed Deposits.
If you want someone to assist you with your investments and grow your wealth, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com
Stock Market Returns vs Inflation: The Wealth-Building Alternative
While Fixed Deposits struggle to beat inflation, the Indian stock market (represented by the Nifty 50 index) has consistently delivered returns that not only beat inflation but create substantial real wealth.
Historical Nifty 50 Performance (2015-2024)
The Nifty 50 has been one of the best-performing indices globally over the past decade:
Year | Nifty 50 Return |
2015 | -3.0% |
2016 | 4.4% |
2017 | 30.3% |
2018 | 4.6% |
2019 | 13.5% |
2020 | 16.1% |
2021 | 24.6% |
2022 | 4.3% |
2023 | 20.0% |
2024 | 28.4% |
Average annual return (2015-2024): 14.32%
Long-Term Stock Market Returns
According to India's Economic Survey 2025, the Nifty 50 has delivered a Compound Annual Growth Rate (CAGR) of 8.8% over the past 10 years on a USD-adjusted basis, outperforming major global indices except NASDAQ and Dow Jones.
Over 15 years, the Nifty has multiplied approximately 4.5 times, translating to a CAGR of about 10.75%.
Since its inception, the BSE Sensex has delivered approximately 15% annual returns on a CAGR basis.
Stock Market Real Returns After Inflation
Unlike Fixed Deposits, equity investments are subject to different tax treatment, and long-term capital gains receive preferential taxation:
Long-term capital gains (held over 12 months): 12.5% tax on gains above ₹1.25 lakh annual exemption
Short-term gains (under 12 months): 20% tax
For long-term investors, the tax burden is significantly lower than on FD interest.
Calculating real returns for Nifty 50 (2015-2024):
Average nominal return: 14.32%
Average inflation: 4.97%
Average real return: 8.94%
That's actual wealth creation. Returns that exceed inflation by nearly 9 percentage points annually.
Case Study: ₹1 Lakh Stock Investment (2015-2024)
Someone who invested ₹1,00,000 in a Nifty 50 index fund in 2015 and held until 2024 would have:
Nominal Value: ₹3,64,187 (264% gain)
Real Value (inflation-adjusted): ₹2,24,339 (124% real gain)
That's over ₹1.24 lakh in real wealth creation—money that has actual purchasing power.
Compare this to the FD investor who lost ₹2,596 in real terms over the same period.
Why Real Returns Matter More Than Nominal Returns
Most investors make the critical mistake of focusing only on nominal returns. This leads to poor investment decisions and wealth erosion over time.
Financial Goals Are Based on Real Values
When planning for your child's education, retirement, or a house purchase, you're thinking about real costs in future money.
If college education costs ₹20 lakh today and inflation averages 6% annually, it will cost approximately ₹35.8 lakh in 10 years. Your investment needs to grow to ₹35.8 lakh in nominal terms just to maintain the same standard. That's why real returns matter.
Real Returns Determine Wealth Creation
Only returns that exceed both inflation and taxes contribute to actual wealth building.
An investment earning 7% nominal returns with 5% inflation and 30% tax creates:
After-tax return: 4.9%
Real return: -0.15%
You're treading water at best, losing wealth at worst.
Comparing Investment Options Accurately
To compare different investments fairly, you must look at real returns, not nominal returns:
Investment | Nominal Return | Tax | Inflation | Real Return |
FD | 7% | 2.1% | 5% | -0.15% |
PPF | 7.1% | 0% (tax-free) | 5% | 2.0% |
Equity | 14% | Variable | 5% | ~8-9% |
Gold | 8% | Variable | 5% | ~2-3% |
This comparison reveals that FDs and gold barely preserve wealth, PPF provides modest real returns, while equities create substantial wealth.
Practical Steps to Beat Inflation
Understanding inflation is only useful if you take action to protect and grow your wealth:
Step 1: Calculate Your Real Returns
For every investment you currently hold, calculate the real return using the formula provided earlier. You might discover you're losing wealth despite seeing nominal gains.
Step 2: Diversify Across Asset Classes
No single investment is perfect. A balanced portfolio might include:
60-70% in equity mutual funds or index funds (for growth)
20-30% in debt instruments like PPF or bonds (for stability)
5-10% in gold (for diversification)
Emergency fund in liquid mutual funds or FDs (for liquidity)
This allocation provides inflation-beating returns while managing risk.
Step 3: Increase Equity Allocation for Long-Term Goals
For goals more than 7-10 years away (retirement, children's higher education), increase equity allocation to 70-80%. The longer time horizon allows you to ride out market volatility while benefiting from equity's superior real returns.
Step 4: Use SIPs to Manage Volatility
Systematic Investment Plans (SIPs) help you invest regularly in equity funds, benefiting from rupee cost averaging. This approach reduces the impact of market timing and builds wealth consistently.
Starting a SIP of just ₹5,000 per month at 12% annual returns grows to approximately ₹1.17 crore in 25 years—well above inflation.
Step 5: Review and Rebalance Annually
As different assets perform differently, your allocation drifts. Annual rebalancing ensures you maintain target allocation and take profits from outperformers.
Step 6: Don't Keep Excess Cash
Beyond your emergency fund (3-6 months of expenses), avoid keeping large amounts in savings accounts earning 2.5-3%. This guarantees wealth erosion as inflation outpaces these returns.
Step 7: Understand Tax-Efficient Investing
Choose investments that offer favorable tax treatment:
ELSS funds provide Section 80C deduction and lower LTCG tax
Long-term equity gains taxed at 12.5% (above ₹1.25 lakh)
PPF offers tax-free returns under EEE status
Tax efficiency significantly impacts real returns
If you want someone to assist you with your investments and grow your wealth, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com
Common Myths About Inflation and Investing
Myth 1: "FDs Are the Safest Investment"
Reality: While FDs protect your principal, they often fail to protect your purchasing power. Real safety means preserving and growing wealth after inflation.
Myth 2: "Stock Market Is Too Risky"
Reality: Over 10+ year periods, equity investments have delivered positive returns 90% of the time in India. The real risk is losing purchasing power to inflation.
Myth 3: "I'll Invest When Inflation Comes Down"
Reality: Waiting for "the right time" means losing compounding benefits and guaranteed wealth erosion from existing inflation.
Myth 4: "My Bank FD Gave Me Good Returns"
Reality: Unless you calculate real returns after tax and inflation, you cannot know if you truly earned anything.
Myth 5: "Gold Always Beats Inflation"
Reality: Gold provides modest protection against inflation but historically underperforms equities in creating real wealth over long periods.
To build wealth, your returns must not just beat inflation, they must beat inflation by a meaningful margin after accounting for taxes. For most Indians, this means incorporating equity investments into their portfolio through mutual funds, index funds, or direct stocks based on knowledge and risk tolerance.
The bottom line is simple: If your investments aren't beating inflation by 3-4% after taxes, you're not building wealth. You're simply preserving some of it, at best.
The time to act is now. Calculate your real returns today, reallocate to inflation-beating assets, and ensure your money works as hard as you do to earn it.
Your future self will thank you for understanding this fundamental principle of wealth creation: Real returns are the only returns that actually matter.
If you want someone to assist you with your investments and grow your wealth, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com
Comments